Business environment

Meaning of business environment:

The word ‘business environment’ indicates the aggregate total of all people, organisations and other forces that are outside the power of industry but that may affect its production. According to an anonymous writer- “Just like the universe, withhold from it the subset that describes the system and the rest is environment”. Therefore, the financial, cultural, governmental, technological and different forces which work outside an enterprise are part of its environment. The individual customers or facing enterprises as well as the management, customer groups, opponents, media, courts and other establishments working outside an enterprise comprise its environment.

Features of business environment:

(A) The totality of External Forces

• Business environment includes everything which is outside the organisation.
• If we add all these forces, they will form a business environment.

Example: When Pepsi and Coca-Cola got permission to set up their business in India, it was an opportunity for them and threat for local manufacturers like gold spot, camp-cola etc.

(B) Specific and General Forces

• Specific forces are those forces which directly affect the operational activities of the business enterprise.
• Example: Suppliers, Customers, Investors, Competitors, Financers etc.
• General forces are those forces which indirectly affect the functioning of business enterprises.

Example: Economic, Social, Political, Legal and Technological conditions.

(C) Inter-relatedness

• Different forces of business environment are interrelated to each other.
• One component of the business environment affects the functioning of other components.

Example: The increased life expectancy of people and awareness of health consciousness has increased the demand for many health products like diet coke, olive oil and so many health products.

(D) Dynamic Nature

• • The business environment is dynamic in nature and keeps on changing in terms of :

(a) Technological improvement,

(b) Shifts in consumer preferences,

(c) The entry of new competition in the market.

Example: Many established companies in FMCG (Fast Moving Consumer goods) sector are focusing on producing the goods with natural ingredients with the entry of ‘Patanjali Products’.

(E) Uncertainty

• • The changes in the business environment cannot be predicted accurately because of future uncertainties.
  • It is very difficult to predict the changes in the economic and social environment.

Example: There has been a sharp decline in the prices of Android smartphones due to the entry of many new companies.

(F) Complexity

• All forces of the Business environment are interrelated and dynamic which makes it difficult to understand.
• Complex nature of Business environment can be understood if we study it in parts.
• Example: Increase in goods and service tax to 15 % would increase the revenue of the government (economic), which would help the government to improve social being of people (social) and reduce the personal disposable income of rich people and thereby controlling inflation.

(G) Relativity

• • Business Environment differs from place to place, region to region and country to country.

Example: In China, the electricity to the industry is provided at cheaper rates as the consumption increases and hence, it leads to mass production whereas, in India, it is otherwise, higher consumption of electricity leads to costly electricity which results in lower production & higher cost of production.